At a time when it seems nothing can knock Tesla, Inc. (NASDAQ:TSLA) stock down, it appears even the slightest gust of wind can throw Ford Motor Company (NYSE:F) off track. While some might believe Ford stock, which has declined 7% year-to-date, is nothing more than a dividend play, these shares can still drive at least 20% higher by the end of the year.
But the company, which just ousted Mark Fields as CEO, must first get its execution into high gear. And there are questions whether Fields’ replacement Jim Hackett, is the right person for the job.
Reasons to Like F Stock
Admittedly, I’ve been a strong supporter of Ford stock, recommending its shares on multiple occasions this year. But despite record revenue and profits, posted in the recent quarter, F, which has been lapped by rival General Motors Company (NYSE:GM), has lost investors’ confidence. But the company is making moves to turn things around.
Thanks to increased demand for its small SUVs — Ford Escape and Lincoln MKC — the Detroit-based automaker plans to reduce its traditional two-week summer shutdown at the Louisville Assembly Plant to one week. On Thursday, the company said that sales of Ford Escape and Lincoln MKC are off to their best start in the company’s history. Sales of both models, which are made at the Louisville Assembly Plant, have soared during the first five months of the year.
In a statement, the company said it has sold 129,805 Escape SUVs through May, which marks a 3% rise year-over-year. Meanwhile, Lincoln MKC sales totaled 11,161 in the first five months of the year, rising almost 10% from last year. According to Raj Nai, F’s executive vice president and president — North America, “The record sales for Ford Escape through May are being driven by strong demand from our retail customers … This is our strongest ever retail start for Escape, with retail sales up more than 6 percent versus this time last year.”
Because of the strong demand, Ford is looking to build more than 8,500 more cars at the plant, where it also manufactures it popular F-Series Super Duty trucks. This is positive news, given the recent drumbeat about “peak auto.” Notably, this news follows last week’s May auto sales data that showed that Ford sales rose 2.2% higher, outpacing General Motors, Honda Motor Co Ltd (ADR) (NYSE:HMC) and Toyota Motor Corp (ADR) (NYSE:TM).
Overall, the auto industry saw a 7.5% improvement from April to May, while rising 0.3% rise year over year.
Obviously, the auto landscape is not a robust as it used to be, given that sales remained relatively flat in May versus a year ago. But “Flat” is better than a decline, which the industry has suffered the last two months. As such, Ford stock should begin to move higher towards $13, rewarding long-suffering shareholders.
Bottom Line for Ford Stock
While F stock does face some serious challenges, the company recognized what it needs to fix. Hackett’s arrival and the company’s push into mobility/technology is a step in the right direction.
Meanwhile, at a forward price-to-earnings ratio of 7, versus a forward P/E of 19 for the S&P 500 index, Ford stock trades on the assumption that it won’t deliver any earnings worth discussing. Consensus estimates of $1.55 per share this year and $1.66 per share next year can easily be topped. As such, I’m giving it the benefit of the doubt and I expect F stock to reach $13 by year’s end.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.